U.S. Postal Service defaults on $5.6 billion for future health benefits

WASHINGTON (Reuters) - The U.S. Postal Service on Monday defaulted yet again on a prepayment for the healthcare of its future retirees as its finances remain in the red and legislative reform remains elusive.

The agency has blamed the payments, more than $5 billion a year as mandated by Congress to prefund the Postal Service's future retirees' healthcare, for contributing to annual losses of billions of dollars.

The requirement was set in 2006 when the agency was still thriving and before the economic crisis. But those massive payments, along with tumbling mail volumes, have since pushed the agency's finances to a precarious position.

Last year, the mandate accounted for a large portion of the Postal Service's $16 billion net loss.

"Without passage of comprehensive legislation as outlined in our five-year business plan, current projections indicate that we will have a dangerously low level of liquidity in the foreseeable future. Therefore, we will be unable to make the required $5.6 billion retiree health benefits prefunding payment due today," a spokeswoman for the agency said in an email.

Postmaster General Patrick Donahoe has begged Congress for legislative reforms, including elimination of the annual prefunding payments and allowing the agency to run its own healthcare system.

Without that flexibility to run its own affairs, innovate and raise revenue, Donahoe has said, the agency could require a taxpayer bailout of nearly $50 billion by 2017.

The Postal Service had been expected to default on the retiree health payment, which it has skipped twice before. The agency has said it is currently losing $25 million every day and has exhausted its borrowing limit.

"Given the state of their finances, the fact that they don't have the money to pay it is not a good thing, but it is not surprising that they're defaulting once again," said Art Sackler, co-manager of the Coalition for a 21st Century Postal Service, a group advocating legislative relief for the Postal Service.

Democratic Senator Tom Carper of Delaware, who is the chairman of the Senate committee that deals with the Postal Service, said in a statement that this recent default was another stark reminder of the agency's dire financial situation.

"We have sat around for too long, watching as the financial challenges facing the Postal Service grow more difficult and the potential solutions become more expensive," Carper said.

So far, lawmakers have not been able to agree on a plan to give the agency the flexibility it wants.

Carper and Republican Senator Tom Coburn of Oklahoma in August introduced legislation that would replace the current prefunding system with a plan spread over 40 years.

House Oversight and Government Reform Committee Chairman Darrell Issa, a California Republican, in July also introduced legislation that would allow the Postal Service to forgo past due payments owed to the healthcare fund and postpone any payments till 2015.

So far, both bills are still under discussion in their respective chambers.

Sackler said he doubts any legislative reform is likely before year end as Congress remains immersed in other legislative priorities such as raising the debt ceiling and differences over the Affordable Care Act.

The Postal Service expects to end fiscal year 2013 with a loss of about $6 billion.

"The headline should be that Congress hasn't fixed this yet," said Sally Davidow, spokeswoman for the American Postal Workers Union. "The (prefund) requirement is what's driving the Postal Service into bankruptcy. Get rid of it."